Client Weekly Update – Friday 4 March

Local update

From Wednesday 16 March, the workplace lateral flow testing (LFT) programme will end. This means LFT kits will no longer be issued by businesses, instead, all employees are being asked to register onto the free home testing programme to ensure they have their own supply of LFTs at home. 

Regular workplace testing will still apply for staff who work in high-risk settings such as healthcare, care homes, the prison, and ambulance services. Businesses that are currently signed up to the workplace programme are being contacted directly about the changes. 

The move to home testing will encourage Islanders to test themselves at least twice weekly at home before they leave for work which better mitigates the spread of the virus.

Additional reminders

Education staff and pupils continue to be expected to do an LFT daily before going to nursery, school, or college. Visitors are reminded to do an LFT before visiting high-risk settings such as the hospital, GP practices, or care homes. 

Anyone visiting the hospital for any reason is reminded that face masks must be worn at all times. Islanders using patient transport services to attend health care appointments are required to take an LFT before they are collected at their place of residence. 

Islanders can register to the home testing programme or reorder an LFT kit on There is no need to submit negative LFT results online unless as part of the process to release early from isolation. If a positive result is received, this should be submitted online to begin the isolation period, and a PCR test should be booked immediately.

Minister for Health and Social Services, Deputy Richard Renouf, said: “By asking staff who are currently using the workplace testing programme to register onto the home testing programme instead, we are ensuring that Islanders check their COVID status before leaving home to go to work. “This is part of the shift towards personal self-responsibility as we de-escalate COVID-19 measures and enter the post-emergency phase of the pandemic. Islanders can conveniently keep a box of LFTs at home to test themselves regularly when needed and ensure community infection is kept to a minimum.”

Russia Ukraine update

On 24 February, the world woke up to the shock and horror of Russian tanks rolling into Ukraine. It is impossible to be unaffected in the face of such high potential for loss of human life – we are all people before we are investors. 

The invasion has, remarkably, not yet been reflected too severely in world markets so far. Yes, volatility has been high, but after rallying on Friday, the S&P 500 actually ended last week slightly higher than where it started. 

The US Dollar Index (DXY) has risen by little more than one percent while credit spreads have widened, but only modestly. Even gold was little changed on the week. Such a comparatively sanguine response to such an appalling geopolitical shock is not, as it turns out, unusual. 

As we discuss below, equity markets tend, ironically, to rise in the aftermath of military conflicts. 

The impact on domestic Russian markets has been devastating, however. Not only have equity markets and the rouble collapsed but the cost of insuring government debt now indicates a 56% chance of sovereign default.

 The cause has been a raft of much stronger and more united sanctions from the West. Particular impact came from sanctions on the Russian Central Bank, controls on a wide array of technology exports (including civilian aircraft spare parts), as well as the suspension of several Russian banks from the global payment system SWIFT. 

Against this backdrop, the key risk for Western markets is probably now escalation. Will the conflict widen out from Ukraine, will Russia dramatically constrain gas exports and what do Putin’s chilling words about “high nuclear alert” really mean? 

The history of military conflicts supports the measured reaction of financial markets so far. The immediate reaction of equity markets to the invasion broadly fits the pattern of previous military crises. In the six examples we reviewed since 1964, most saw flat returns over the first month of conflict, while all saw markets reach higher over six months.

Interestingly, this includes the 1991 Gulf War, where global energy supplies were also clearly at risk

For this comparative market stability to continue, there are however some important assumptions to be made. First, the Federal Reserve has a track record of pausing tightening or at least responding more dovishly to short-term shocks and we assume this applies today. 

It certainly suggests that talk of a half-point rise at next month’s FOMC meeting is now unlikely but note analysts still expect five US rate rises in 2022. 

Certainly, other central bankers have already appeared more dovish; ECB member Robert Holzmann probably spoke for many, last week, when he indicated that a move to normalise policy remains likely, but ‘the speed may be somewhat delayed’.

The second assumption is that gas exports from Russia to Europe continue to flow (maybe the Russian need for foreign exchange revenues will ensure this).

Third, as we mentioned earlier, is the risk of escalation. Already, Belarus is acting as an arm of the Russian state, while the decision by the EU, US and UK to supply arms to Ukraine could easily be used as a pretext for Putin to widen the crisis. 

Note, too, the possibility, albeit unlikely, of de-escalation. The peace talks may succeed or perhaps Putin’s unconstrained control of policy is challenged back in Moscow.

The longer-term impact

In the longer-term perhaps the right global parallel for the invasion of Ukraine is 9/11 – a single event that determined government, foreign and military policies for years to come. 

The implications of course are multiple today but we already see three areas that will have a particular impact on financial markets: 

  • First, the invasion of Ukraine has come at a difficult time for the global economy. Prices, in the aftermath of the pandemic, are already rising at levels not seen in 40 years. Russia, meanwhile, is the world’s largest producer of gas and one of its largest oil producers. 

It will also potentially become one of the biggest exporters of grains, soybeans and sunflower oil if it has access to Ukraine’s rich soil. The United Nations releases its monthly food index this week and this may already show prices above 2011 levels – a year when skyrocketing food costs contributed to political uprisings in Egypt and Libya. 

In short, the impact on price levels could become a unique challenge for global central banks and could, if allowed to persist, raise the risk of stagflation. The possible parallels with the 1970s oil price shock in the aftermath of the Yom Kippur war provide a worrying precedent.

  • Second, with Poland, Hungary and five other NATO members potentially sharing a border with a new, expanded Russia, the ability of the United States and NATO to defend the alliance’s eastern flank could be seriously challenged. 

The result will be an end to the post-cold war ‘Peace Dividend’ and a surge in military spending by European NATO members. Already, Germany has pledged 100 billion euros to modernise the Bundeswehr, an act of extraordinary political significance for the country. 

Russia by contrast will continue to seek a two-tier NATO, in which only limited allied forces are deployed on former Warsaw Pact territory. Pursuing this agenda could result in regular flashpoints along NATO borders, ongoing cyber hostility and increased risk of escalation – this means heightened geopolitical risk for an extended period. 

One small positive has emerged – the European Union has finally found a decisive and united voice on the world stage. The organisation and its institutions have typically grown stronger during crises (fiscal integration for example finally became a reality during COVID) – the current one is proving no exception. 

  • Third, the fragmentation of global supply chains and cross border trade can only be further exacerbated. Already the internet, social media space and many technologies are divided between Russia and the West. 

Today an Iron Curtain has fallen on the Russian internet and, through far-reaching export controls, on Russian access to global technology, especially high-end semiconductors. China, of course, will still be a supplier (it could effectively take 100% control over Russia’s technology needs). 

For global manufacturers though, it is yet another reason to shorten supply chains, bolster domestic production facilities and sacrifice margins in return for the security of supply.

The situation remains fluid but rest assured we are continuing to monitor developments and the impact these may have on investments at our funds and model levels and, of course, on the longer-term outlook for markets.

Mixed markets

The FTSE is down over 218 points or 3% to 7,020.60 this morning, a fall of over 6% for the week, which would put it on course for its worst week since the 5.85% decline in June 2020.

European markets are sharply lower today with shares in France off the most. The CAC 40 is down 3.20% while Germany’s DAX is off 3.05% and London’s FTSE 100 is lower by 2.79%.

Yesterday afternoon, the Nasdaq dropped 1.6% on the session, the biggest decline among the major averages. The S&P 500 concluded -0.5% and the Dow Jones -0.3%.

Looking at closing numbers, the Nasdaq dropped 214.07 to finish at 13,537.94. The Dow Jones fell 96.69 to end at 33,794.66. The S&P 500 concluded the session at 4,363.49, a decline of 23.05.

Asian markets finished broadly lower today with shares in Hong Kong leading the region. The Hang Seng is down 2.54% while Japan’s Nikkei 225 is off 2.23% and China’s Shanghai Composite is lower by 0.96%

LSE suspends companies linked to Russia

The London Stock Exchange (LSE) has suspended trade for 28 Russian-linked firms, following the imposition of crippling sanctions on Russia following its invasion of neighbouring Ukraine last week.

According to Reuters, the market said it was “closely monitoring” the impact of the crisis and was “actively engaging” with regulators and authorities about potential measures.

A notification released by the exchange on Thursday morning reported that companies affected include the state-owned oil colossus Gazprom and the country’s largest lender, Sberbank.

Some of Russia’s top miners, oil companies, and metals giants, including Lukoil, Norilsk Nickel, Polyus, and Rosneft, have also been halted with immediate effect.

“London Stock Exchange Group has suspended trading in 28 Russian-listed securities,” Chief executive David Schwimmer said.

“This has been based on sanctions and the ability to run an orderly market,” he added. “Suspensions are driven by those decisions, so if we see any other securities affected by sanctions then similar actions will take place.”

As a result of the sanctions imposed during the invasion, a unit of Russia’s second-largest bank, VTB, was stopped from trading on the London Stock Exchange last week.

Separately, the Treasury announced on Thursday that the UK would impose further restrictions on Russian companies that provide insurance and reinsurance.

Russian aviation and space firms will be barred from accessing the UK insurance sector, significantly limiting their access to the global insurance market.

“Coupled with similar actions by the EU, this move further isolates Russia’s economy from the international financial system,” a statement from the Treasury said.

Elliott Advisors snaps up UK mortgage group Enra

Elliott Advisors, the feared activist investment firm, has agreed to buy Enra Group, a specialised UK mortgage finance company, for £350 million.

Elliott, which was founded by Paul Singer, one of Wall Street’s most important personalities, is close to announcing the acquisition of the Watford-based company, according to Sky News.

Exponent Private Equity, Enra’s investor since 2016, placed the company up for sale last year.

The company, led by CEO Danny Waters, offers a variety of financing options to households as well as professional property investors, developers, and landlords.

Elliott’s acquisition of Enra is the firm’s latest foray into direct investing in the United Kingdom.

It already owns well-known companies such as Waterstones, the bookshop giant that confirmed this week a Sky News claim that it was buying Blackwell’s, the smaller academic speciality.

Elliott is well recognized for its attempts to demand big reforms at large publicly traded firms.

In recent months, it has targeted corporate behemoths such as GlaxoSmithKline, Taylor Wimpey, and SSE in the United Kingdom, with limited success.

Attempts have already been attempted to gain seats on the boards of firms such as Hammerson, the shopping mall conglomerate.

Exponent Private Equity, did not react to a request for comment, and Elliott did not respond to a request for comment.

Islanders donate generously to Ukraine

This weekend, four truckloads of contributions for Ukrainian refugees escaping the current crisis will be sent to Poland and Romania.

Due to the enormous reaction from Islanders, the effort, which was organized by Honorary Polish Consul Magda Chmielewska, will terminate two days sooner than intended.

On Saturday morning, supplies will be delivered by donated trucks to Rzeszów in south-east Poland and Romania. The items will subsequently be delivered by Caritas.

Mrs Chmielewska said: ‘I am so proud of our Island. We stand united as one and hopefully, we can do as much to help these people as possible. We have at least four lorries worth of supplies and we are actually stopping the donations at 3pm on Friday instead of on Sunday because we have so much stuff.’

Meanwhile, the government has outlined how Islanders can make monetary contributions to the Bailiff’s Ukraine Fund.

Islanders have until 3 p.m. on Friday to deliver goods to the Old Magistrate’s Court building at St Helier Town Hall. People are also encouraged to contact their local parish hall to find out when their collection service expires.